Spare change: The financial literacy edition

If you read Get Rich Slowly regularly, you probably know that this is Financial Literacy Month.

And my inbox has been filled with press releases about it, like best practices for financial literacy and 30-day programs to get your finances on track.

But for me, tactics like those didn’t spur me to become financially literate. So what finally did the trick? Unhappiness.

When I was just out of college, I basically had no savings and about $1,500 of credit card debt. I’d pay down the balance and then run it up again. I honestly can’t even remember what sort of Stuff I was buying. Probably clothes and gifts and pedicures, if I had to guess. I also had a job I didn’t love. And I hated how dependent I was on that job, since I had no savings to speak of.

I don’t know how I stumbled on GRS, but one day, I did. I lurked for about a year before I left my first comment. In that year, I learned that if I started really paying attention to my finances, I wouldn’t have to ever feel like I’m a slave to my job. I learned that even on a modest salary, I could build an emergency fund. I could save for retirement. I could travel to Italy.

So, I did it. It took time, but I paid off my debt. I saved an emergency fund. Then I saved for a trip to Italy, and then I saved eight months of living expenses so I could quit my job and try being a real estate agent. Real estate wasn’t for me, but I never regretted quitting that job!

I know I wouldn’t have made such big changes if I hadn’t been deeply unhappy with my situation. And that brings me to our first Spare Change link this month!

Who’s behind financial literacy efforts?

In “The fallacy of financial literacy,” Jill Schlesinger, CFP and editor-at-large for CBS MoneyWatch, argues that pain is a more effective motivator than any financial literacy program. In addition, she’s suspicious about financial literacy efforts, many of which are backed by big banks, “whose motives may be suspect,” she writes. “Many of these big companies promote their public education projects, while at the same time continuing to sell murky, complicated products.”

Three ways to make personal finance relevant to kids

I wrote earlier this month about how personal finance curriculum lacks “stickiness”. Kiplinger writer Janet Bodnar covered this in a recent article, as well, and she points to more studies that illustrate the problems with personal finance education. She also offers three tips for teaching your kids about money in a way that will stick. First, she recommends an allowance that’s tied to financial responsibilities, such as buying their own clothes or paying their cell phone bill. Second, teaching on a “need-to-know basis,” instead of overwhelming kids with information that’s not really relevant to them yet. And third, making it fun with games or competitions.

And speaking of making it fun…

Financial literacy by video game

Neale Godfrey knew she needed a new way to teach financial literacy to kids. “The fundamentals of the information I teach have not changed much in the past 25 years,” she writes in her Huffington Post article. “The way we consume that information has changed.” So Godfrey, the chairman of Children’s Financial Network and author of books like “Money Doesn’t Grow on Trees,” decided to turn to technology. Specifically, video games. Godfrey developed Green$treets: Unleash The Loot!, a mobile video game app for kids. But then she went a step further. “We teamed up with the Fingerprint network … to use their platform in order to connect the technology to real life — during game play we connect via email to parents, grandparents, and educators to tell them what the kids are learning so they can reinforce the learning in real life as well,” she writes.

Career-themed theme park

Several years ago, my nieces and nephew went to a theme park in Monterrey, Mexico. But this wasn’t a theme park filled with whiplash-inducing roller coasters or zero-gravity machines. Instead, Kidzania gives kids a day job and a salary. Founded by Mexican entrepreneur López Ancona, KidZania aims to be a realistic educational environment that allows kids to explore careers and learn about money. Kids can be firefighters, doctors, or fast-food employees, to name just three of the many career choices, and they’re paid in KidZos, the official currency of KidZania. There are currently 12 KidZania parks around the world, with one planned to open in the U.S. in 2015.

Unfortunately for me, KidZania is only for kids aged 4 through 16. I mean, real estate didn’t work out, and while writing is going pretty well, I wouldn’t mind testing a career as a pastry chef. Or a race-car driver.

re: she’s suspicious about financial literacy efforts, many of which are backed by big banks, “whose motives may be suspect,” she writes. “Many of these big companies promote their public education projects, while at the same time continuing to sell murky, complicated products.”

Even if more people became financially literate, there would still be plenty of profit for the big banks in their traditional areas, such as mortgages and commmercial loans – they were profitable long before easy credit arrived on the scene.

Two, if those who were capable of being educated on their finances quit doing foolish things, it might actually benefit the banks, as loan defaults might decrease.

Contrary to Hollywood, doing the right thing is not usually a bad idea for big businesses.

Not sure if you have seen, but Warren Buffet has a tv series called the Secret Millionaires Club, where some teens partner up and through each episode, the viewer, is able to learn some business principles, success principles that can be applied to life, and money principles.

So TV shows are another recommendation for teaching financial literacy.

Educating kids is important, but educating adults is more important. Kids will generally copy what their parents and role models do. So if their parents pay the minimum on credit cards, don’t save money, don’t invest, etc., you have a pretty good guess of how the kids will behave.

As for Jill’s suspicions. There are some aspects of personal finance that seem built around selling products. But the core tenants are solid. Spend less than you earn. Save and invest your extra money. If people can master these, they still may get ripped off by banks or some other financial service provider, but they’ll be doing a lot better than they are now.

Of course the banks want to get on board with financial literacy programs. That way, when their confusing and dangerous products get people into trouble, they can just blame the victims: “You just weren’t financially literate enough.”

I’m all for making sure people have access to the information they need to make good financial decisions, but that information (1) has to come from people who don’t have a conflict of interest, and (2) has to be coupled with a strong set of consumer protections. We have laws to ensure that the food, appliances, and other products we buy are safe – we should have the same for financial products.

I think you’re completely wrong about banks wanting to support financial literacy just so they can ‘place blame on the victims.’ Is there some self-motivation? Yes, in the sense that the more financially literate a person is, the less likely they are to take on debt they can’t afford and then default on the loan because they understand the consequences better. Perhaps big banks are different, but as a lender with a community bank, we try to help our customers find the product that is the best fit for their needs, and we are careful to be very transparent and not allow them to overburden themselves with debt. Banks are lucky if they can recoup the principal balance on a bad loan, much less all the associated expenses, so it doesn’t make sense to put people in ‘confusing and dangerous products’ that will get them in trouble. Plus, any business will tell you that you make more money from a good repeat customer, and if you keep making people mad with bad sales you’re gonna lose business. It just doesn’t make sense to invest in educating people so you can screw them over.

Also, the banking industry is stromngly patrolled by the Consumer Finacial Protection Bureau and other regulators, and there are a large number of regulations in place to prevent banks from taking advantage of people. Right now, the worst cases of unfair and deceptive practices are coming from payday lenders and the like, which are not as strongly regulated as banks and target people who can’t qualify for loans with traditional banks or don’t know any better.

Teaching well will help some people, but personal motivation is a big factor, too. Every teen knows that smoking is bad, but some still choose to do it, anyway, because they believe it won’t be so bad for THEM. Same with financial responsibility.

There’s an amazing bank in Colorado called the Young Americans Bank that works with its nonprofit arm, the Young Americans Education Foundation, to offer accounts of all types for kids up to 23 years old, classes and camps similar to what you described to teach all types of financial literacy. It is incredible!

Some people say that the best things to get people motivated for action are fear and loathing, that it’s easy to ignore underlying problems, and that we have to get agitated from time to time to get moving.

I’m glad you got agitated enough for action, because it sounds like you’re on a great path now

I’ve never heard of Kidzania before, that sounds awesome. I would totally bring my kids to one if there was one close by. Financial literacy is huge and I’m glad that this month is dedicated to it. Hopefully it helps out at least a few people.

I’m thinking you might really like “The One-Week Job Project” by Sean Aiken. I wish I had taken a year off to explore 52 jobs when I got out of college. In case you haven’t heard of it, any money he was paid went to charity and he eventually got a sponsor to help with transportation and living costs. I liked the book (don’t know nor can endorse him personally).

Information and motivation are two different things. The old adage, you can lead a horse to water but you can’t make him drink, is as true with money management as it is with dieting, exercising or smoking or any number of behaviors.

As far as children and money are concerned, if you teach them good money habits at a young age, the chances are much better they’ll be more responsible and knowledgeable about money when they’re older.

Most behaviors are the result of ingrained habits. Habits start when you’re young. That’s why it’s so hard to change them and why it’s smart to start instilling good habits at a young age. Love the theme park!

I live in Florida and we used to have a place called Wannado City. It was similar to the Kidzania you described, kids were given “money” and were able to be workers or consumers. I don’t think it is around anymore, but is a great concept.

Another great thing for kids is the Take Our Kids to Work Day (started as Take Our Daughters to Work). This is an excellent opportunity for kids to see what their parents do all day and have a “hands on” experience with an actual job.

Career Day at school is a great opportunity for kids to learn about different careers.

Now if only they had Financial Day or a high school elective course on every day finances, we’d be in business!

You may like a book called “The One-Week Job Project”. The author took a different job every day for a year, then donated the proceeds to charity. He was just out of college but I found it quite enlightening, less for the job descriptions than for the gusty attitude.

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